ELLIOTT WAVE ANALYSIS - Latest Market Commentary
Stock Indices
The Ukraine/Crimea stand-off between the European allies and Russia has not led to any risk-off trading last week with our benchmark S&P 500 making new record highs to 1883.57. Despite this however, it remains vulnerable to a sustained counter-trend decline because the minimum requirement for the completion of a five wave expanding-impulse pattern that dates back to June ’13’s low has been achieved. Ideally though, fib-price-ratio measurements extend its finalising 5th wave advance from the early Feb.’14 low a little higher, towards min. 1904.26, max. 1931.33. To comply with this upside target, prices are required to hold above last week’s retracement low of 1834.44. The equivalent five wave impulse advance from the June ’13 low is also visible in the outperforming XLV Health Care ETF and its fib-price-ratio measurements exactly project into last week’s high of 60.49. ###This raises a red warning flag of a potential reversal signature although we await confirmation to evaluate whether the S&P can still trade higher without significant divergence. Meanwhile in Europe, the Eurostoxx 50 and Xetra Dax trade more sensitively to the Ukraine/Russian news-flow. For the time being, we maintain higher target levels projecting an attempt above the January highs as part of a zig zag development from the Feb.’14 lows. This short-term positive bias will however evaporate should the indices stage a more immediate synchronised decline below last week’s lows. In Asia, the Hang Seng is expected to continue a little higher to complete its counter-trend rally from the early Feb.’14 low before resuming its larger decline from last December. India’s Nifty 50 is outperforming but heading into next resistance at 6714.85. In Japan, the Nikkei 225 has already reached last week’s upside targets at 15340 (futures) but an extension to this counter-trend rally remains possible to 15632 before prices resume larger declines. 10th March 2014
Currencies (FX)
> During the end of last week, the US$ index pushed lower and exceeded the important Dec.’13 low of 7969 that had secured a consecutive 1-2-1-2 sequence from the Oct.’13 low. This reactivates the ‘alternate’ scenario that describes the entire counter-trend correction from the Nov.’13 high of 8148 as unfolding into a double zig zag pattern. The first zig zag is shown to have completed at 7969, followed by a deep ‘X’ wave advance to 8138. The secondary zig zag in progress from there originally projected to 7939. This level can be corroborated by a fib-correlative 61.8% ratio based on intra-hourly substructure that projects to 7943. Taken together, this convergence (which is at the fib. 85.4% retracement of the 7899-8148 upswing) should form a strong support area that is likely to initiate a reversal signature. Once occurred, the US$ index is expected to stage upside acceleration from current levels to maintain the larger bullish outlook### for the next months with ultimate upside objectives to 8885+/-. This short-term outlook can be replicated on the Euro/US$ that has exceeded the 1.3893 high. Now, strong resistance at 1.3938-49 is already being approached that should offer a great opportunity for a downside reversal – three fib-price ratios converge at this area which indicates stable resistance. Once the reversal is confirmed, subsequent declines during the next months are maintained towards original downside objectives at 1.2528 to finalise the larger expanding flat sequence in progress from the Feb.’13 high of 1.3711. Sterling has already traded into short-term upside resistance at 1.6785+/-. An intra-hourly single zig zag sequence is evident from the 1.6583 low that is acting as a counter-trend correction to the preceding 1.6824-1.6583 sell-off. Thus, a downside reversal from here would trigger 3rd wave downside acceleration within the five wave expanding-impulse sequence from 1.6824. This would be in line with expectations of the current scenario that depicts a decline for Sterling towards interim objectives at 1.6025. US$/Yen has stretched higher during the last days and is now in close proximity to a fib. 61.8% extension of the initial 10075-10272 upswing. This sets the stage for a possible reversal that would confirm a single zig zag counter-trend sequence from 10075 and resume the larger downswing from 10548. 10th March 2014
Bonds (Interest Rates)
The ECB’s president Mario Draghi hailed the Euro-Block as an ‘island of stability’, emphasising its contrast to the current instability in Ukraine. But the overriding concern remains with economic lethargy and increasing fears of deflation. These factors combined led to an unchanged decision on its main refinancing rate at 0.25% but with market disappointment on moves to inject more central bank liquidity into the pot. The net result was modestly higher long-dated yields and a stronger Euro against the Dollar. But as the week came to a close, DE10yr yields edged lower from the week’s highs of 1.687 and we expect this decline to continue in the weeks ahead for the completion of the multi-month double zig zag pattern in decline from last September with targets towards 1.435%. US10yr yields also traded higher ###during last week but hit overhead resistance at 2.817%. Last Friday’s release of U.S. non-farm payroll figures reflected increasing employment combined with higher revisions from previous months led to yield rises towards 2.817%. But overhead resistance is expected to pull yields lower during the next few weeks to continue the overall decline from the late Dec.’13 high of 3.096%. Ultimate downside targets remain unchanged towards 2.355% for the completion of the multi-month expanding flat pattern as primary wave 4. 10th March 2014
Commodities
Amidst all speculations about the Russian/Ukraine-escalation, the Elliott Wave pattern suggests an upside continuation for precious metals during the next weeks. Gold is poised for a US$ 100 increase to return to its Aug.’13 high of 1433.82 whilst silver is likely to underperform and thus fall short of its equivalent high at 25.12 with an idealised objective measured to 24.08. This is due to the different pattern structure – whereas gold is about to finalise a larger horizontal flat sequence which requires a return to the wave ‘A’ high, silver is bound into a contracting triangle pattern that forecasts more moderate upside gains. Shorter-term, gold and silver are prone to an upside reversal to confirm the completion of last week’s counter-trend sell-off – for gold, this is labelled as a smaller fourth ###wave while for silver, it is debateable whether wave ‘A’ of the finalising zig zag advance already completed at 22.19 or will finalise towards a slightly higher level of 22.55. Meanwhile, Brent oil has still not confirmed its bearish outlook with targets towards 96.25 in the months ahead, but the probability is slowly accumulating in favour of this forecast. Although the ‘alternate’ count advocating upside acceleration from current levels can still be maintained by assuming the completion of a short-term expanding flat pattern at 107.37, any drop below there would significantly lower its odds – a decline below 105.06 will definitely rule out any near-term bullishness. 10th March 2014
